September 27, 2017

Less than one year after
the Australian government agreed to ratify the Paris Agreement on climate
change, a new report has warned that Australia risks falling short of its
own national emissions targets without significantly ramping up the
electricity sector’s shift to renewable energy.

The report, the first major publication from The Australia
Institute’s new Climate & Energy Program, finds that to meet Australia’s
unambitious 26-28 per cent by 2030 Paris commitment – and to do so for the
least cost to the economy and other key sectors like manufacturing –
electricity sector emissions would need to be cut by between 40-55 per cent
below 2005 levels by 2030.

The good news, is that this “least cost” emissions reduction
approach is eminently doable. The bad news – at least for the Turnbull
government and its right-wing anti-renewables rump – is that it will mean
building a great deal more renewable energy generation between now and then,
and framing policy to support that build-out.

According to the TAI – which uses the summarised results of
a number of separate government commissioned analyses to support its findings –
using an abatement cost approach to electricity sector targets, and a policy
like the Clean Energy Target recommended by the Finkel Review, would lead to as
much as 75 per cent renewables by 2030.

“This analysis of the economic modelling demonstrates
meeting (40-55% emissions reduction) targets for the electricity sector with a
policy like the clean energy target is likely to require 66-75 per cent of
electricity to be supplied by renewables,” said Ben Oquist, TAI’s executive
director, in comments on Monday.

“If Australia adopts a weak clean energy target which does
not provide a strong signal for renewables, we risk turning Australia’s
moderate Paris targets into an extremely expensive task.”

Indeed, the findings echo modelling done by the Finkel
Review which showed that – if a CET was to match the Paris climate goals,
rather than Australia’s downpayment, then a renewable energy share of around 70
per cent by 2030 would be required.

The report’s findings come at a critical time for the
Turnbull government, which appears to be stuck in a dangerous no-man’s land on
both climate and renewable energy policy, while under attack from within.

Leading that internal attack is former PM Tony Abbott, who
last week declared he would cross the floor and vote against anything remotely
resembling a climate change policy, or the smallest subsidy for renewable
energy.

As Giles
Parkinson put it in this piece last week, Abbott’s declaration of war on
everything not only wedges Malcolm Turnbull in a highly uncomfortable policy
position, but returns Australian industry and the energy sector to the
miserable realisation that nothing much has changed, in terms of investment
certainty.

And it reminds us of the uncomfortable reality – highlighted
in the report – that the very climate targets we risk failing to meet were set
by the same man who now seeks to undermine them: Tony Abbott.

“If Australia is to achieve the Abbott government’s climate
targets new energy policies will be required,” report author and TAI director
of research Rod Campbell writes.

“Both issues are of high current policy interest. The
Australian government is currently considering whether to implement the
proposed CET and what targets it might set for the electricity sector as part
of its 2017 Climate Policy Review.

“The Opposition has signalled ‘in principle’ support for a
CET and has committed to a 50 per cent renewable energy target by 2030, which
has been ridiculed by the government and conservative commenters.”

For those who remain confused, Campbell carefully explains
why a mechanism like the Clean Energy Target remains so important for
Australia, even as large-scale solar and wind farm development are starting to
take off. And why any form of policy uncertainty remains so damaging – in
particular for electricity prices.

“Electricity generation assets have long economic lives.
This means investors need to consider both existing and future carbon-energy
policy settings. The apparent incongruity between Australia’s 2030 mitigation
targets and the long-term commitments embodied in the Paris Agreement create
uncertainty,” the report says.

“Investors do not know whether the unambitious approach
embodied in the 2030 targets will persist, or whether policy settings will be
modified to give effect to the Paris Agreement’s commitments.

“As the hypothetical scenarios in Figure 9 illustrate, the
post-2030 policy settings could remain unambitious, which might translate into
a gradual decline in electricity sector emissions under the CET through to 2050
and beyond.

“Alternatively, there may be a rapid increase in the level
of ambition, requiring a sharp drop in electricity sector emissions in the
2030s and zero emissions by 2050.

“The uncertainty about post-2030 policy settings could deter
investment and increase the cost of capital, with flow on effects for the price
of electricity in the market.”

Figure 10 shows how a long-term investment signal approach
avoids this uncertainty by setting emissions targets in line with the long-term
objective of decarbonisation at or before 2050.

“Rather than facing the prospect of abrupt future changes in
emissions, investors face a long-term emission path that provides them with
certainty about policy settings over coming decades.”

The report also reminds readers that under almost any
scenario modelled on “reasonable” carbon abatement targets, the vast bulk of
Australia’s electricity generation mix is renewable from the mid-2020s on,
while coal-fired generation is phased out in the early 2030s. Indeed, coal fares
the best under the CET.

“The overall message from the Jacobs modelling for the CCA
is clear – a CET-like policy is likely to bring in the largest share of
renewables. This would come particularly at the expense of gas, with coal-fired
generation also lasting longest under a CET,” the report says.

“The government has been consistent in its commitments to
Australia’s international emissions targets,” said TAI’s Oquist. “It remains to
be seen if we choose to meet those Paris commitments the easy way, or the hard
way.

“Unless energy and climate policy are integrated we will
have neither reliability nor affordability, let alone the ability to meet our
international commitments,” Oquist said.